Inventory Turnover
Efficiency of inventory management.
business
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The inventory turnover calculator measures how many times a business sells and replaces its stock in a period, and how many days a typical unit sits before it is sold. It needs two figures from the accounts: the cost of goods sold for the period and the average inventory held during it.
The two formulas
Inventory turnover = cost of goods sold ÷ average inventory
Days of inventory = 365 ÷ inventory turnover
Cost of goods sold (COGS) is used rather than sales because inventory is carried at cost; comparing cost to cost keeps the ratio honest. Average inventory is usually (opening stock + closing stock) ÷ 2, though a monthly average is better if stock swings with the season.
A worked example
A Surat textile wholesaler had ₹40 lakh of stock on 1 April and ₹60 lakh on 31 March, and its cost of goods sold for the year was ₹4 crore.
| Item | Figure |
|---|---|
| Average inventory | (40 + 60) ÷ 2 = ₹50 lakh |
| Cost of goods sold | ₹4 crore |
| Inventory turnover | 4,00,00,000 ÷ 50,00,000 = 8 times a year |
| Days of inventory | 365 ÷ 8 = 46 days |
Stock turns over eight times a year; the average bolt of cloth waits about a month and a half before it is sold.
What a good number looks like
There is no single right answer; it depends on what you sell.
- Groceries and fresh food turn 15 to 30 times a year, with days of inventory in the low teens or less.
- Fashion and footwear in India typically turn 4 to 6 times.
- Furniture, jewellery and machinery may turn 1 to 3 times, and nobody worries.
The useful comparisons are against your own past periods and against direct competitors. A falling turnover with rising stock means money is sitting on the shelf; a very high turnover can mean stock-outs and lost sales.
Why it matters for cash
Every day of inventory is a day the money spent on that stock is unavailable. Cutting the wholesaler's days of inventory from 46 to 36 at the same sales volume frees roughly ₹11 lakh of working capital, which is money that would otherwise come from an overdraft at 10% or more.
Related calculators
Pair this with the profit margin calculator to see whether faster turnover is coming at the cost of margin, and with the break-even calculator when deciding how much stock a new line needs.
Inventory Turnover — frequently asked questions
What is the inventory turnover formula?
Cost of goods sold divided by average inventory for the same period. Days of inventory is 365 divided by that ratio.
Why use cost of goods sold instead of sales?
Inventory is recorded at cost. Dividing sales (at selling price) by inventory (at cost) mixes two different bases and inflates the ratio.
How do I find average inventory?
Add the opening and closing stock values for the period and divide by two. If stock changes a lot through the year, average the month-end figures instead.
What is a good inventory turnover ratio?
It depends on the trade: grocery 15 or more, fashion 4 to 6, furniture and jewellery 1 to 3. Compare against your own previous periods and competitors in the same line.
What does a low turnover tell me?
Stock is sitting longer than it should: over-ordering, slow-moving lines, or obsolete items. Each extra day of inventory ties up working capital.
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